Credit unions are using the credit crisis as ammunition for persuading Congress to let them make more loans to small businesses.
With lawmakers expected to consider a second economic stimulus package when they convene next week for a lame-duck session, credit unions see an opportunity to argue that the cap on member business loans (currently 12.25% of assets) should be eliminated or at least increased to 20%.
"If eliminated, we could extend $10 billion in the first year to small-business owners," said Ryan Donovan, the vice president of the legislative affairs for the Credit Union National Association. "We are under no illusions that it would solve the entirety of the problem, but it is good public policy to look at avenues that don't cost the taxpayers a dime."
At this point it is unclear if Congress will consider the credit union industry's proposal, and even if it did, the move would be likely to meet resistance from banking industry officials, who say now is no time to loosen regulatory restrictions on lenders.
"Credit unions are not immune to the economy," said Keith Leggett, chief economist with the American Bankers Association.
Additionally, Mr. Leggett said he takes issue with the credit unions' stance that they should receive an expansion of power because their members did not contribute to the turmoil in the housing market.
"Some credit unions strayed from their charters, just like some banks did," he said. "They can say all they want that it is not their fault, but some have contributed to this."
Currently the credit union industry has about $30 billion of member business loans, according to the CUNA.
The member business loan cap, mandated by the Credit Union Membership Access Act of 1998, has long been a thorn in the side of credit unions. Trade groups such as the CUNA and the National Association of Federal Credit Unions have called the cap both arbitrary and antiquated and have worked for years to modify or repeal it.
In June the House passed the Credit Union, Bank, and Thrift Regulatory Relief Act, which, among other things, would exclude business loans in underserved areas from the cap. Credit union officials say the bill would help, though they have been pressing the case for more meaningful change.
"In this current credit crunch, credit unions would like to provide members with more access to capital," Fred R. Becker Jr., the NAFCU's president and chief executive officer, wrote in a letter to Senate leaders last month. "It is disappointing that given the current economic environment where capital is limited, the arbitrary member business lending cap placed on credit unions over a decade ago remains in place."
Mr. Becker also wrote in the letter, "Credit unions did not cause this crisis, but our members recognize that it is important to be part of the solution."
Peter Duffy, an associate director at Sandler O'Neill & Partners LP, said that claim is bit disingenuous. Credit unions have just a fraction of the financial services indsustry's assets, but like banks, they faced intense mortgage competition brought on by an influx of nonbanking lenders, and some were "innovative and entrepreneurial" when it came to winning business during the housing boom.
"The math of all that works until you get an economic slowdown," Mr. Duffy said. "As banks experience difficult times in their mortgage portfolios, so have credit unions."
So far this year 13 small credit unions have failed, and an additional 246 are considered troubled, according to data from the National Credit Union Administration. Nineteen banks, most larger than the average credit union, have failed year to date and, at last count in August, 117 were considered troubled.
Also, a number of large credit unions racked up significant losses last quarter as mortgage loans faltered, and corporate credit unions collectively are sitting on as much as $10 billion of unrealized losses related to their exposure to mortgage-backed securities.
Bill Hampel, the CUNA's chief economist, said some credit unions in the earlier part of the decade got creative and "did a few stupid things," but overall credit unions are healthier than banks.
Mr. Hampel cited statistics that put credit union industry chargeoffs for the first half of the year at 0.19% of loans. That ratio rose 10 basis points from a year earlier.
The chargeoff rate for commercial banks jumped 69 basis points from a year earlier, to 1.16% of loans as of June 30, according to data from the Federal Deposit Insurance Corp.
Though the credit union chargeoff rate doubled in the past year, "it's close to zero," Mr. Hampel said. "If commercial banks were that low, they would be ecstatic."
John Magill, senior vice president of legislative affairs for the CUNA, wrote in an e-mail Tuesday that some members of Congress have been receptive to the idea of lifting the cap.
"The trick will be in convincing the legislators" that an economic stimulus bill "is the proper vehicle, as many will want to keep the bill as 'clean' as possible," Mr. Magill wrote.
"If we're not successful in hopping on what may be a smaller lame-duck stimulus bill, we'll try again in early '09."
